Download November 21, 2012

November 21, 2012
Streetwise Professor thinks we might be seeing evidence of a capital strike.
After the US economy began to recover rather robustly in the mid-1930s, a series of illconsidered government policies, notably a tax on undistributed profits, a big increase in
marginal rates on high incomes, the Wagner Act, and a Fed contraction of the money supply led
to a substantial contraction in 1937. The depression within the Depression.
One notable feature of the 1937 episode was the so-called “Capital Strike”, a sharp decline in
corporate investment.
The imminency of Obamacare and Frankendodd, and the continued failure to address seriously
the country’s fiscal situation, with the associated uncertainty about taxes and spending, may be
creating a modern-day version of the capital strike. The WSJ reports that growth in investment
expenditure has slowed to a standstill, and that many large companies are slashing investment
plans. The article places the blame on the “Fiscal Cliff”, but in reality, this is overdetermined, as
they say. There are multiple factors at work, and all in the same bearish direction: the
regulatory friction (epitomized by Obamacare, Frankendodd and the EPA) is a major drag on
growth, and a major source of investment-killing uncertainty. Indeed, I would put the least
weight on the Fiscal Cliff as it is conventionally portrayed: that conventional portrayal is almost
purely comic book Keynesian in nature, focusing on “aggregate demand”. IMO, the handling of
the expiration of various tax reductions and the potential for sequestration is relevant not
because of AD-a slippery and largely chimerical concept-but because of what it portends about
the future course of government spending, and in particular the appetite to deal with
entitlements and transfer payments.
If what the WSJ reports is indeed a harbinger of a modern day capital strike, that would be
consistent with my broad forecast in my post-election post. A protracted period of
stagnation/slow growth. Which will only exacerbate the fiscal situation and increase the risk of a
rollover/funding crisis.
As if we really should need another Ghost of Christmas Future to warn us, take a look at Japan
right now. Just saying.
Similar thoughts from Jonathan Tobin.
Polls have consistently shown that far more Americans still blame George W. Bush for the
country’s economic difficulties than those who were prepared to place responsibility on the man
who has been president for the last few years. That fact, along with an economy that wasn’t very
good but still not as terrible as many thought it might be, was enough to re-elect Barack Obama
earlier this month. In doing so, Obama became the first president to successfully run for a
second term, while blaming his predecessor for his own failures, since Franklin Delano
Roosevelt, who buried Alf Landon in 1936 by running against his predecessor Herbert Hoover.
That was quite a trick, but President Obama should be wary of emulating FDR in every respect.
As Amity Shlaes wrote yesterday in Bloomberg News, Roosevelt’s second term provides some
ominous precedents for an Obama second term. As our colleague John Steele Gordon wrote
earlier this year, it may always be 1936 for liberals who believe conservatives are doomed to
perpetual defeat. But what the president and his supporters should be worrying about is whether
2013 turns out to be a repeat of 1937, when a country mired in the Great Depression suffered
another economic setback that heightened the country’s misery. As Shlaes points out, signs
abound that the “Great Recession” that Obama claimed to save the country from during the
campaign may be about to get worse. ...
In London's Telegraph, Janet Daley warns that the second term of obama could lead
to a permanent no-growth economy.
Forget about that dead parrot of a question – should we join the eurozone? The eurozone has
officially joined us in a newly emerging international organisation: we are all now members of
the Permanent No-growth Club. And the United States has just re-elected a president who
seems determined to sign up too. No government in what used to be called “the free world”
seems prepared to take the steps that can stop this inexorable decline. They are all busily telling
their electorates that austerity is for other people (France), or that the piddling attempts they
have made at it will solve the problem (Britain), or that taxing “the rich” will make it unnecessary
for government to cut back its own spending (America).
So here we all are. Like us, the member nations of the European single currency have
embarked on their very own double (or is it triple?) dip recession. This is the future: the long,
meandering “zig-zag” recovery to which the politicians and heads of central banks allude is just
a euphemism for the end of economic life as we have known it.
Now there are some people for whom this will not sound like bad news. Many on the Left will
finally have got the economy of their dreams – or, rather, the one they have always believed in.
At last, we will be living with that fixed, unchanging pie which must be divided up “fairly” if social
justice is to be achieved. Instead of a dynamic, growing pot of wealth and ever-increasing
resources, which can enable larger and larger proportions of the population to become
prosperous without taking anything away from any other group, there will indeed be an absolute
limit on the amount of capital circulating within the society.
The only decisions to be made will involve how that given, unalterable sum is to be shared out –
and those judgments will, of course, have to be made by the state since there will be no
dynamic economic force outside of government to enter the equation. Wealth distribution will be
the principal – virtually the only – significant function of political life. Is this Left-wing heaven? ...
NY Times reports on discoveries in South Africa that point to an early creation of
sophisticated tools by modern humans.
At a rock shelter on a coastal cliff in South Africa, scientists have found an abundance of
advanced stone hunting tools with a tale to tell of the evolving mind of early modern humans at
least 71,000 years ago.
The discovery, reported in the current issue of the journal Nature, lends weight to the hypothesis
that not only did anatomically modern Homo sapiens emerge in Africa but also, to a previously
unsuspected extent, their cognitive capacity for abstract and creative thought and the
conception of increasingly complex technologies associated with modern human behavior.
The report describes the stone tools as microliths, thin blades about only an inch long that could
be affixed to wood or bone. These tipped projectiles were either arrows propelled by bows or,
more likely, spears launched by atlatls, wooden extensions of the throwing arm that act as a
lever, imparting greater speeds and distances to the weapon. This technology, the researchers
said, may have been pivotal to the success of Homo sapiens as humans left Africa and entered
Eurasia some 50,000 years ago, encountering Neanderthals who were limited to hand-thrown
spears.
The new evidence appeared to answer some critics who have contended that previous findings
of early modern human behavior in Africa have been spotty and short-lived — a “flickering”
pattern of experimentation with little or no continuity over time and across regions. The rock
shelter excavations at Pinnacle Point, near Mossel Bay, east of Cape Town, show that this
micro-blade technology continued over 11,000 years, until 60,000 years ago. The report says
the technology was also “typically coupled to heat treatment” processes in shaping sharp and
durable blades that persisted for nearly 100,000 years.
In their article in Nature, the researchers conclude, “Early modern humans in South Africa had
the cognition to design and transmit at high fidelity these coupled recipe technologies.”
One of the authors, Curtis W. Marean, director of the research and a paleoanthropologist at the
Institute of Human Origins at Arizona State University, said, “Every time we excavate a new site
in coastal South Africa with advanced field techniques, we discover new and surprising results
that push back in time the evidence for uniquely human behaviors.” ...
Streetwise Professor
Capital Strike Redux?
by Craig Pirrong
After the US economy began to recover rather robustly in the mid-1930s, a series of illconsidered government policies, notably a tax on undistributed profits, a big increase in
marginal rates on high incomes, the Wagner Act, and a Fed contraction of the money supply led
to a substantial contraction in 1937. The depression within the Depression.
One notable feature of the 1937 episode was the so-called “Capital Strike”, a sharp decline in
corporate investment.
The imminency of Obamacare and Frankendodd, and the continued failure to address seriously
the country’s fiscal situation, with the associated uncertainty about taxes and spending, may be
creating a modern-day version of the capital strike. The WSJ reports that growth in investment
expenditure has slowed to a standstill, and that many large companies are slashing investment
plans. The article places the blame on the “Fiscal Cliff”, but in reality, this is overdetermined, as
they say. There are multiple factors at work, and all in the same bearish direction: the
regulatory friction (epitomized by Obamacare, Frankendodd and the EPA) is a major drag on
growth, and a major source of investment-killing uncertainty. Indeed, I would put the least
weight on the Fiscal Cliff as it is conventionally portrayed: that conventional portrayal is almost
purely comic book Keynesian in nature, focusing on “aggregate demand”. IMO, the handling of
the expiration of various tax reductions and the potential for sequestration is relevant not
because of AD-a slippery and largely chimerical concept-but because of what it portends about
the future course of government spending, and in particular the appetite to deal with
entitlements and transfer payments.
If what the WSJ reports is indeed a harbinger of a modern day capital strike, that would be
consistent with my broad forecast in my post-election post. A protracted period of
stagnation/slow growth. Which will only exacerbate the fiscal situation and increase the risk of a
rollover/funding crisis.
As if we really should need another Ghost of Christmas Future to warn us, take a look at Japan
right now. Just saying.
Contentions
Obama’s Ominous FDR Precedent
by Jonathan S. Tobin
Polls have consistently shown that far more Americans still blame George W. Bush for the
country’s economic difficulties than those who were prepared to place responsibility on the man
who has been president for the last few years. That fact, along with an economy that wasn’t very
good but still not as terrible as many thought it might be, was enough to re-elect Barack Obama
earlier this month. In doing so, Obama became the first president to successfully run for a
second term, while blaming his predecessor for his own failures, since Franklin Delano
Roosevelt, who buried Alf Landon in 1936 by running against his predecessor Herbert Hoover.
That was quite a trick, but President Obama should be wary of emulating FDR in every respect.
As Amity Shlaes wrote yesterday in Bloomberg News, Roosevelt’s second term provides some
ominous precedents for an Obama second term. As our colleague John Steele Gordon wrote
earlier this year, it may always be 1936 for liberals who believe conservatives are doomed to
perpetual defeat. But what the president and his supporters should be worrying about is whether
2013 turns out to be a repeat of 1937, when a country mired in the Great Depression suffered
another economic setback that heightened the country’s misery. As Shlaes points out, signs
abound that the “Great Recession” that Obama claimed to save the country from during the
campaign may be about to get worse.
The key clue is the drop in industrial production that set off a decline in the stock market in the
aftermath of the president’s victory. One can’t compare that drop to the precipitous decline that
America suffered in 1937 (when most stocks lost half their value). But as Shlaes writes, the link
between the two situations may be the federal government spending sprees that both
Democratic presidents engaged in, followed by tax hikes that spiked any chance for growth.
Another troubling parallel is what she calls the fallout from first-term legislation. In FDR’s case,
the New Deal may have given many Americans hope, but the result of the vast expansion of
federal power and the consequent diversion of money from taxpayers to the government was
“reduced available cash, increased uncertainty and lower business confidence.” As Bethany
wrote earlier today, the impact of the implementation of ObamaCare on business has the
potential to raise unemployment and send the country into another “Great Recession.” In both
cases, governments that have tried to “play God” with the economy may bring down on the
nation policies that can “spook markets and employers whatever the decade.”
While FDR was able to keep blaming the country’s ills on Hoover until Tojo and the Japanese
imperialists bombed Pearl Harbor and finally ended the Depression, it remains to be seen
whether Americans will still be grousing about George W. Bush if a year or two from now that
they are stuck in another “Great Recession” brought about by Obama’s policies.
Telegraph, UK
We’re heading for economic dictatorship
The whole of the West is falling into the economic black hole of permanent no-growth
by Janet Daley
Forget about that dead parrot of a question – should we join the eurozone? The eurozone has
officially joined us in a newly emerging international organisation: we are all now members of
the Permanent No-growth Club. And the United States has just re-elected a president who
seems determined to sign up too. No government in what used to be called “the free world”
seems prepared to take the steps that can stop this inexorable decline. They are all busily telling
their electorates that austerity is for other people (France), or that the piddling attempts they
have made at it will solve the problem (Britain), or that taxing “the rich” will make it unnecessary
for government to cut back its own spending (America).
So here we all are. Like us, the member nations of the European single currency have
embarked on their very own double (or is it triple?) dip recession. This is the future: the long,
meandering “zig-zag” recovery to which the politicians and heads of central banks allude is just
a euphemism for the end of economic life as we have known it.
Now there are some people for whom this will not sound like bad news. Many on the Left will
finally have got the economy of their dreams – or, rather, the one they have always believed in.
At last, we will be living with that fixed, unchanging pie which must be divided up “fairly” if social
justice is to be achieved. Instead of a dynamic, growing pot of wealth and ever-increasing
resources, which can enable larger and larger proportions of the population to become
prosperous without taking anything away from any other group, there will indeed be an absolute
limit on the amount of capital circulating within the society.
The only decisions to be made will involve how that given, unalterable sum is to be shared out –
and those judgments will, of course, have to be made by the state since there will be no
dynamic economic force outside of government to enter the equation. Wealth distribution will be
the principal – virtually the only – significant function of political life. Is this Left-wing heaven?
Well, not quite. The total absence of economic growth would mean that the limitations on that
distribution would be so severe as to require draconian legal enforcement: rationing, limits on
the amount of currency that can be taken abroad, import restrictions and the kinds of penalties
for economic crimes (undercutting, or “black market” selling practices) which have been
unknown in the West since the end of the Second World War.
In this dystopian future there would have to be permanent austerity programmes. This would not
only mean cutting government spending, which is what “austerity” means now, but the real kind:
genuine falls in the standard of living of most working people, caused not just by frozen wages
and the collapse in the value of savings (due to repeated bouts of money-printing), but also by
the shortages of goods that will result from lack of investment and business expansion, not to
mention the absence of cheaper goods from abroad due to import controls.
And it is not just day-to-day life that would be affected by the absence of growth in the economy.
In the longer term, we can say good-bye to the technological innovations which have been
spurred by competitive entrepreneurial activity, the medical advances funded by investment
which an expanding economy can afford, and most poignantly perhaps, the social mobility that
is made possible by increasing the reach of prosperity so that it includes ever-growing numbers
of people. In short, almost everything we have come to understand as progress. Farewell to all
that. But this is not the end of it. When the economy of a country is dead, and its political life is
consumed by artificial mechanisms of forced distribution, its wealth does not remain static: it
actually contracts and diminishes in value. If capital cannot grow – if there is no possibility of it
growing – it becomes worthless in international exchange. This is what happened to the
currencies of the Eastern bloc: they became phoney constructs with no value outside their own
closed, recycled system.
When Germany was reunified, the Western half, in an act of almost superhuman political
goodwill, arbitrarily declared the currency of the Eastern half to be equal in value to that of its
own hugely successful one. The exercise nearly bankrupted the country, so great was the
disparity between the vital, expanding Deutschemark and the risibly meaningless Ostmark
which, like the Soviet ruble, had no economic legitimacy in the outside world.
At least then, there was a thriving West that could rescue the peoples of the East from the
endless poverty of economies that were forbidden to grow by ideological edict. It remains to be
seen what the consequences will be of the whole of the West, America included, falling into the
economic black hole of permanent no-growth. Presumably, it will eventually have to move
towards precisely the social and political structures that the East employed. As the fixed pot of
national wealth loses ever more value, and resources shrink, the measures to enforce “fair”
distribution must become more totalitarian: there will have to be confiscatory taxation on assets
and property, collectivisation of the production of goods, and directed labour.
Democratic socialism with its “soft redistribution” and exponential growth of government
spending will have paved the way for the hard redistribution of diminished resources under
economic dictatorship. You think this sounds fanciful? It is just the logical conclusion of what will
seem like enlightened social policy in a zero-growth society where hardship will need to be
minimised by rigorously enforced equality. Then what? The rioting we see now in Italy and
Greece – countries that had to have their democratic governments surgically removed in order
to impose the uniform levels of poverty that are made necessary by dead economies – will
spread throughout the West, and have to be contained by hard-fisted governments with or
without democratic mandates. Political parties of all complexions talk of “balanced solutions”,
which they think will sound more politically palatable than drastic cuts in public spending: tax
rises on “the better-off” (the only people in a position to create real wealth) are put on the moral
scale alongside “welfare cuts” on the unproductive.
This is not even a recipe for standing still: tax rises prevent growth and job creation, as well as
reducing tax revenue. It is a formula for permanent decline in the private sector and endless
austerity in the public one. But reduced government spending accompanied by tax cuts
(particularly on employment – what the Americans call “payroll taxes”) could stimulate the
growth of new wealth and begin a recovery. Most politicians on the Right understand this. They
have about five minutes left to make the argument for it.
NY Times
Stone Tools Point to Creative Work by Early Humans in Africa
by John Noble Wilford
The research site at Pinnacle Point on South Africa’s coast, east of Cape Town .
At a rock shelter on a coastal cliff in South Africa, scientists have found an abundance of
advanced stone hunting tools with a tale to tell of the evolving mind of early modern humans at
least 71,000 years ago.
ARTIFACTS The excavations have uncovered caches of advanced stone hunting tools, including spear
tips and other small blades, or microliths, which suggest that modern Homo sapiens in Africa had a
grasp of complex technologies. The research team’s report challenges a Eurocentric theory of
modern human development.
The discovery, reported in the current issue of the journal Nature, lends weight to the hypothesis
that not only did anatomically modern Homo sapiens emerge in Africa but also, to a previously
unsuspected extent, their cognitive capacity for abstract and creative thought and the
conception of increasingly complex technologies associated with modern human behavior.
The report describes the stone tools as microliths, thin blades about only an inch long that could
be affixed to wood or bone. These tipped projectiles were either arrows propelled by bows or,
more likely, spears launched by atlatls, wooden extensions of the throwing arm that act as a
lever, imparting greater speeds and distances to the weapon. This technology, the researchers
said, may have been pivotal to the success of Homo sapiens as humans left Africa and entered
Eurasia some 50,000 years ago, encountering Neanderthals who were limited to hand-thrown
spears.
The new evidence appeared to answer some critics who have contended that previous findings
of early modern human behavior in Africa have been spotty and short-lived — a “flickering”
pattern of experimentation with little or no continuity over time and across regions. The rock
shelter excavations at Pinnacle Point, near Mossel Bay, east of Cape Town, show that this
micro-blade technology continued over 11,000 years, until 60,000 years ago. The report says
the technology was also “typically coupled to heat treatment” processes in shaping sharp and
durable blades that persisted for nearly 100,000 years.
In their article in Nature, the researchers conclude, “Early modern humans in South Africa had
the cognition to design and transmit at high fidelity these coupled recipe technologies.”
One of the authors, Curtis W. Marean, director of the research and a paleoanthropologist at the
Institute of Human Origins at Arizona State University, said, “Every time we excavate a new site
in coastal South Africa with advanced field techniques, we discover new and surprising results
that push back in time the evidence for uniquely human behaviors.”
The lead author of the report was Kyle S. Brown, a specialist in ancient stone tools who is
associated with the University of Cape Town. Prior investigations showed that this microlithic
technology appeared briefly between 65,000 and 60,000 years ago and then seemed to vanish.
Such thin blades had not been found in abundance until about 20,000 years ago.
Dr. Marean said in a telephone interview that while some archaeologists were still skeptical of a
strong African role in modern human behavior, there was diminishing support for the more
Eurocentric “creative explosion” concept, born of bedazzlement over the cave art and fine tools
of Upper Paleolithic Europe, which became widespread after the arrival of modern humans.
“Ninety percent of scientists are comfortable that fully modern humans and human cognition
developed in Africa,” Dr. Marean said. “Now they have moved on. The questions are, how much
earlier than 71,000 years did these behaviors emerge? Was it an accretionary process, or was it
an abrupt event? Did these people have language by this time?”
Like many other archaeologists, Dr. Marean and his team have concentrated their investigations
in the caves and rock shelters overlooking the Indian Ocean. In a global ice age beginning
72,000 years ago, many Africans fled the continent’s arid interior, heading for the more benign
southern shore. Access to seafood and more plentiful plant and animal resources may have
increased populations and encouraged technological advances, Dr. Marean said.
The well-preserved artifacts at Pinnacle Point, collected over a recent 18-month period, led the
researchers to conclude that the advanced technologies in Africa “were early and enduring.”
Other archaeologists who reached different conclusions may have been misled by the “small
sample of excavated sites,” they said.
Richard G. Klein, a paleoanthropologist at Stanford University who has favored a more sudden
and recent origin of modern behavior, about 50,000 years ago, questioned the reliability of the
dating method for the tools, noting that “there is another team that has already argued for a
much longer” time period for the toolmaking culture.
The new report, Dr. Klein said in an e-mail, “does illustrate, as have many others, that the
archaeological evidence for modern human origins is controversial.”
The hypothesis of earlier African origins of modern human behavior and cognition has been
gaining strength over the last decade or two. Two archaeologists, Alison S. Brooks of George
Washington University and Sally McBrearty of the University of Connecticut, led the charge with
publications of their analysis of increasing evidence of African art and ornamentations
expressing a modern cognitive capacity and symbolic thinking.
In a commentary accompanying the Nature report, Dr. McBrearty, who was not involved in the
research, wrote that she believed that “modern cognitive capacity emerged at the same time as
modern anatomy, and that various aspects of human culture arose gradually” over the course of
subsequent millenniums.
Dr. McBrearty gave a cautious endorsement of the new research from Pinnacle Point relating
complex technologies to the evolution of modern behavior in Africa. She said the findings “go
some way to supporting this hypothesis.”